Servicing

Fannie Mae and Freddie Mac will be able to securitize jumbo mortgages originated between July 1, 2007, and the end of this year under the economic stimulus package that the House of Representatives was expected to pass Tuesday afternoon. The stimulus bill (H.R. 5140) temporarily raises the GSE conforming loan limit to 125% of median area home prices in high-cost areas, with a $729,750 cap. H.R. 5140 also includes "sense of Congress" language that encourages the government-sponsored enterprises to securitize the jumbo mortgages -- but leaves it up to Fannie and Freddie to decide the best execution. Fannie Mae president and chief executive Daniel Mudd told Bloomberg News that his preference is to securitize the loans. "That is a good business for us," he said. "It is not capital-intensive. But there may be instances where it makes sense to put them on the balance sheet." The stimulus bill also temporarily raises the loan limits for Federal Housing Administration loans in high-cost areas.

Bank of America chairman and chief executive Kenneth Lewis said the bank's planned acquisition of Countrywide Financial Corp. "is a go" after Countrywide released earnings Tuesday morning. Speaking at a Citigroup investors conference, Mr. Lewis said Countrywide's fourth-quarter financial results, which revealed higher credit costs and a loss, were in line with Bank of America's due diligence and offering price. "At this point, everything is a go for completing this transaction," Mr. Lewis said. He also said Countrywide's year-end results showed improvement in its underlying mortgage business. BoA can be found on the Web at http://www.bankofamerica.com.

Countrywide Financial Corp., Calabasas, Calif., has completely abandoned using commercial paper borrowings to fund its operations and is relying instead on hefty advances from the Federal Home Loan Bank System, according to its fourth-quarter earnings release. A year ago, Countrywide had $7.7 billion in outstanding asset-backed commercial paper and another $6.7 billion in unsecured CP, for a total of $14.4 billion. It now has zero in those categories, according to its earnings statement. At Dec. 31, 2007, it had $47 billion in outstanding advances from the FHLBank system, an increase of 69% in 12 months. The company can be found on the Web at http://www.countrywide.com.

After predicting that it would earn money in the fourth quarter, Countrywide Financial Corp. posted a $422 million loss for the period. Over the past six months, the nation's largest lender/servicer has lost $1.6 billion. It also reported fourth-quarter loan production of just $61 billion, a 48% decline from the level recorded a year earlier. The company originated just $65 million in subprime loans, compared with $9.1 billion a year ago. It set aside $924 million for credit losses in the fourth quarter, compared with $937 million in the third quarter. It also took an impairment charge of $831 million tied to what it called "retained interests" in prime-quality, junior-lien home equity securitizations. Countrywide's servicing business lost $198 million (pretax) in the fourth quarter, and the firm wrote down the value of its $1.46 trillion mortgage servicing portfolio by $1.6 billion. The publicly traded lender is slated for sale to Bank of America. In a statement, Countrywide chairman and chief executive Angelo Mozilo blamed the company's performance on "further credit deterioration across the industry and continued illiquidity in the secondary mortgage markets." For the year, Countrywide lost $704 million, its first annual net loss in more than 30 years.

The rating outlook of U.S. Central Federal Credit Union has been revised from stable to negative by Fitch Ratings because of the credit union's exposure to subprime mortgage-backed securities. "While losses to date have been absorbed through earnings, and management has taken steps to reduce its mortgage exposure, the portfolio still has meaningful exposure to the nonprime mortgage market and contains securities that could generate additional realized losses," Fitch said. The credit union's long- and short-term issuer default ratings have been affirmed at triple-A and F1-plus, respectively, as a result of its "solid credit fundamentals" and franchise strength, the rating agency said.

Huntington Bancshares, Columbus, Ohio, has been designated the "Bear of the Day" for Jan. 28 by Zacks Equity Research, Chicago. The Bear of the Day is a stock expected to underperform the markets over the next three to six months. "Digestion of the Sky Financial merger has weighed on the share price in the current quarter, with the potential for negative implications over the next several quarters, as the Franklin relationship that was inherited with this acquisition mostly contributed to the loss," Zacks said. The research firm noted the weaknesses in the housing and credit environment and said they "are expected to overhang the market in 2008." Zacks can be found online at http://www.zacks.com, and Huntington can be found at http://www.huntington.com.

Standard & Poor's has launched a new biannual "servicer evaluation spotlight report" that will include aggregated servicer performance data. The report will encompass prime, subprime, and alternative-A loan servicing data. Data covering escrow administration, loss mitigation, default management, ARM resets and loan modifications will be included in the analysis, S&P said. "It offers valuable transparency into the mortgage servicing industry for investors, servicers, and anyone interested in knowing what is happening on the industry's front lines," said Michael Gutierrez, managing director and head of S&P's servicer evaluations group. The rating agency can be found on the Web at http://www.standardandpoors.com.

Middleburg Financial Corp., Middleburg, Va., saw its fourth- quarter 2007 earnings drop by nearly two-thirds in a year-over-year comparison, due mostly to an impairment charge related to the company's investment in Southern Trust Mortgage LCC. Middleburg recorded a noncash impairment charge of $5 million related to its investment in STM. The lender reported net income of $3.1 million ($0.67 per share) for 2007, which represents a 61.8% decrease from $8 million ($1.90 per share) in 2006. Earnings from mortgage banking have been hurt by decreased production levels and narrowed margins resulting from shifts in the mix of retail and wholesale loan volume, Middleburg reported. Additionally, along with the higher expense associated with adjusting STM's allowance for loan losses, other expenses increased with the hiring of several loan producers and support staff with the objective of increasing future loan production levels.

Ellie Mae, a Dublin, Calif.-based provider of software for the mortgage industry, has announced the release of Encompass Banker Edition 3.0 and Encompass Custom Edition 3.0. Custom Edition offers "extensive configurability" in a loan origination system, and Banker Edition is "a complete end-to-end business solution" designed for small to midsize correspondent mortgage lenders, mortgage bankers, community bankers, credit unions, and brokers interested in becoming bankers, Ellie Mae said. Most of the system enhancements will benefit both editions of Encompass. "Now, mortgage bankers can service loans prior to selling loans on the secondary market, track their profitability on trades, and configure notifications that alert them of key servicing activities, such as when statements must be sent out, when accounts go past due, and when they're scheduled to make upcoming disbursements," said Jonathan Corr, chief strategy officer for Ellie Mae. The company can be found online at http://www.elliemae.com.

New York Attorney General Andrew Cuomo has granted Clayton Holdings immunity in exchange for providing information on its due diligence work for Wall Street firms that securitized subprime mortgages. The publicly traded company says it has provided due diligence reports to the New York AG since it was first subpoenaed in June. "Now, at the request of the New York attorney general, we have entered into a cooperative agreement with his office," said Frank Filipps, Clayton's chairman and chief executive. The New York Times first reported the immunity agreement. The New York attorney general's office has not replied to requests for confirmation. Clayton performs due diligence on loans purchased by conduits, and identifies "exceptions" to the issuers' loan guidelines. The Shelton, Conn.-based company also evaluates the performance of loans once they are securitized. A company executive said the percentage of loans securitized in 2006 that had exceptions was about 30%.